Pages

Wednesday, July 12, 2017

An unequal world

The UK comes out very unfavourably in international comparisons of income and wealth distribution. There the top ten percent of households have disposable income nine times that of the bottom ten percent. But the level of inequality is much higher for pre-tax incomes where the incomes of the top ten percent are 24 times higher than that of the bottom ten percent. Worse, the top one percent of households on average had an income of £253,927 and the top 0.1 percent had an average income of £919,882 [in 2012]. In terms of income the UK is much more unequal than most OECD countries and is the 7th most unequal; amongst European countries the 4th most unequal.

Wealth inequality in the UK is even greater than it is for income; the richest ten percent of households hold 45 percent of all wealth and the poorest 50 percent have 8.7 percent.

Quantitative Easing both for the UK has worsened inequality. QE both, directly and indirectly, increases asset prices and since ownership of financial and other assets is skewed such that most of the capital gain accrues to those with the largest holdings. Thus, the top five percent of households in the UK hold 40 percent of financial assets and gained the most. This is equivalent to the top five percent each receiving £128,000 as a result of QE in the years prior to 2012. Since QE has continued to be central to monetary policy in the UK then the richest have continued to be the main beneficiaries.

It is also worth noting that the UK has had massive property price inflation partly through the liquidity generated by QE and again the greatest benefit will have accrued to the richest segment of the population; this is an extra transfer to the top five percent.

Governments across the EU are following tax policies that are increasingly regressive in their impact with greater dependence on indirect taxes and reductions in the degree of progressivity in income taxes.

Taking account of evasion by the rich significantly changes the estimates of inequality. Researchers found in the case of Norway: "Because offshore wealth is extremely concentrated, taking it into account lifts top wealth shares significantly. It increases the top 0.1% wealth share from 8% to 10%. For the top 0.01%, the wealthiest 330 Norwegian households, taking tax evasion into account increases their reported wealth by a third."

The HSBC [Switzerland] leak and the Panama Papers provide additional evidence on the scale of tax evasion and thus throw into doubt the global evidence on income and wealth inequality. Tax evasion rises sharply with levels of income and wealth and in Scandinavia it is estimated that for the top 0.01 percent that evasion is as high as 30 percent. Once tax evasion is taken into account the increase in inequality since the 1970s rises even more sharply. Because tax systems vary sharply across countries and also does tax evasion then there must be severe doubts about the quality of existing data on inequality.

The global rich have the greatest incentive to evade taxes and are enabled in this respect by weak legal enforcement by tax authorities together with support from a global system of banks and others that facilitate evasion.

In practice, corporate taxes are increasingly easily avoided thereby further raising the returns to owners of capital. While the power of labour organisations has weakened so also has capital been able to grasp a larger share of net product and hence a higher share of national income [and national wealth]. The actions of central banks have directly and indirectly caused further income and wealth inequality.